VMware buys Nicira for $1.05 billion

VMware said Monday that it will buy Nicira in a deal valued at $1.05 billion in cash.

Nicira specializes in open source software for network virtualization. VMware will also assume $210 million in unvested equity awards.

The deal is expected to close in the second half of the year. The acquisition puts VMware in the market for "software-defined networking." In other words, VMware is looking to virtualize networking like it has the data center.

For VMware, Nicira is part of an effort to put together what it calls the software defined data center. VMware has obviously established a dominant presence in virtualizing servers in the data center. Nicira was backed by Andreessen Horowitz as well as Lightspeed Venture Partners and NEA. Ben Horowitz said in a blog post that VMware picked up a product and team that can make it a serious networking player.

With Nicira, which only just started production systems, VMware acquires the networking part of the virtualization stack. VMware is also owned by EMC, which happens to focus heavily on virtualizing storage.

All of those pieces combined give VMware an interesting value proposition. Technically, VMware defines the software-defined data center as one that can grow and shrink as needed.

Nicira has a strong customer roster including AT&T, eBay and Fidelity. Nicira's flagship product is the Nicira Network Virtualization Platform, which aims to speed up services. VMware said it will continue to support Nicira's Open VSwitch technologies.

The company reported earnings of $192 million, or 44 cents a share, on revenue of $1.12 billion, up 22 percent from a year ago. Non-GAAP earnings were 68 cents a share. U.S. revenue was $551 million and international sales were $572 million in the second quarter.

VMware said its third quarter revenue will be between $1.11 billion and $1.15 billion. Wall Street was looking for sales of $1.14 billion for the third quarter. VMware said 2012 revenue will be between $4.54 billion and $4.63 billion.

According to VMware it ended the third quarter with cash, equivalents and short-term investments of $5.3 billion.